GeoPark Limited (NYSE: GPRK): First horizontal well at LL-34 in production at over 3,000 bbl/d
• 1Q23 production was 36,578 boe/d. This is very close to our expectations of 37,200 bpe/d. High production at CPO-5 (WI: 5,012 bbl/d vs our expectation of 4,500 bbl/d) and Platanillo (2,227 bbl/d vs our expectation of 2,000 bbl/d) was offset by lower production in Chile and Brazil on lower gas offtake. Production in these two countries is lower margin than in Colombia.• The Indico 6 and Indico 7 wells in the CPO-5 block in Colombia continue to be offline until definitive surface facilities are completed. These two wells represent ~2.4-3.3 mbbl/d net to GeoPark. The facilities continue to be expected to be completed in 2Q23 (May).
• The first horizontal well in the Tigana field (LL-34) has been put on production at a flow rate over 3,000 bbl/d with virtually no water cut from the Mirador formation. This is a very good flow rate that has taken gross production from the block from 54.8 mbbl/d in 1Q23 to ~57 mbbl/d currently. The well cost ~US$10 mm. According to Parex Resources (GeoPark’s partner), there are potentially ten horizontal well locations in the block. Mirador is a reservoir that has hardly been tapped so far but that can offer upside potential and could extend plateau production. Overall, we estimate that a minor portion of the reserves at LL-34 are associated with this reservoir.
• Other areas of interest and potential upside at LL-34 include the ongoing water flood programme in certain marginal areas and some additional appraisal activities in minor fields.
• GeoPark is re-iterating its FY23 guidance of 39.5-41.5 mboe/d.
• We have changed our target price to US$26 per share as we incorporate recent drilling results.
Exploration drilling results
The Picabuey 1 and Koala 1 wells at LL-87 were dry. The Tororoi 1 and Zorzal 1 wells (LL-87) flowed oil to surface (240 bbl/d in the case of Tororoi 1) but further work is required. Follow-on wells could be drilled at these two locations. The Yarico 1 well at CPO-5 was also dry. During the rest of 2023 GeoPark will drill the high impact Halcon well at CPO-5 (and potentially another exploration well) and 2-3 exploration wells at LL-123/124.
Valuation
Our Core NAV is now ~US$18/sh (ReNAV of ~US$26/sh). We forecast that the aggregate free cash flow over 2023-2024 will represent ~50% of the current market cap. The current dividend represents a ~4.5% dividend yield.
Auctus Advisors is a specialist Equity Capital Markets and Advisory business with a focus in the Energy Sector.
The partners have complementary skill sets, with decades of experience across Equity Capital Markets, Investment Banking and the Energy industry. We have worked at Société Générale, Canaccord Capital, BMO Capital Markets and Schlumberger. Most recently we have worked together for many years at GMP FirstEnergy.
Auctus has been set up at the beginning of a new decade in which we see significant opportunities in the Energy space. Globally, demand for energy is at record levels and continues to grow. Conversely, investment in traditional energy sources has been severely constrained. We believe this imbalance creates opportunities for both companies and investors.
Auctus provides Corporate Broking, Equity Research and Investment Banking services.
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